sales tax refund
In the shuffle of collecting sales taxes from your customers and paying sales taxes to your vendors, sometimes the occasional mistake comes up. If you realize you’ve overpaid taxes on a purchase or collected too much from a customer, you need to complete the process for a sales tax refund. Fortunately, this procedure isn’t too complicated and the government gives you a few options to handle the refund.
Paid too much in taxes
If you’ve paid too much in sales taxes, you generally have three ways to fix the mistake. First, you can file an amended sales tax return for the current period noting the overpayment. This will reduce the total amount in sales taxes you would have needed to collect for the government and would give your business a sales tax refund for the year.
You can also carry the overpayment forward as a credit for your next sales tax return so you’ll end up paying less the next tax period. Finally, you can apply directly for a refund from the agency in charge of sales taxes in your state. For example, in Texas you would apply through the Comptroller of Public Accounts
Collected too much in taxes
On the other hand, if you’ve collected too much in sales taxes from a client, you have a couple ways to return the money. First, you can directly refund the excess sales taxes to the client. If you regularly do business with that customer, you can also use the overpayment as a credit against sales taxes on future sales, though the customer needs to give written consent for this arrangement.
From there, you should follow the process of having paid too much in sales taxes. Since you returned the excess sales taxes to your customer, you are now in the position of having paid too much in sales taxes to the government.
Good records are key
Dealing with a sales tax refund is much easier when you have good records. To file for a refund, you’ll need your company’s name and tax information, the name of the customer involved in the transaction, clear invoices showing the sale and the sales taxes collected, and an explanation of why you need a refund. Without good sales and purchasing records, this will be hard to do.
Interest on sales tax refunds
It is possible that the government will pay interest on your overpayment of sales taxes. This often depends on how long it took to correct the mistake. For example, New York pays interest on sales tax refunds that took over three months to process from the date the application for a refund was received. If the New York government sends out the refund within three months of receiving the application, it doesn’t pay interest. The specific rules for your situation will depend on your state of business.
Ideally, your sales tax records will always be accurate so you don’t ever have to go through this extra work. However, if you are in the position of needing to process a refund, follow this advice so everything goes as smoothly as possible.
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